THIS DOCUMENT IS A COPY OF THE FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30,
1996 FILED ON AUGUST 20, 1996 PURSUANT TO A RULE 201 TEMPORARY HARDSHIP
EXEMPTION.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-25226
EMERSON RADIO CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 22-3285224
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9 Entin Road Parsippany, New Jersey 07054
(Address of principal executive offices) (Zip code)
(201)884-5800
(Registrant's telephone number, including area code)
(Former name, former address, and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. [X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of common stock as of June 30, 1996:
40,252,772.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
Three Months Ended
June 30
1996 1995
<S> <C> <C>
Net revenues . . . . . . . . . . . . . $41,147 $ 57,058
Costs and expenses:
Cost of sales . . . . . . . . . . . 38,784 50,886
Other operating costs and expenses . 934 1,617
Selling, general & administrative
expenses . . . . . . . . . . . . . 5,364 5,242
45,082 57,745
Operating loss . . . . . . . . . . . . (3,935) (687)
Interest expense . . . . . . . . . . . 812 622
Loss before income taxes . . . . . . . (4,747) (1,309)
Provision (benefit) for income taxes . (24) 92
Net loss . . . . . . . . . . . . . . . $ (4,723) $ (1,401)
Net loss per common share. . . . . . . $ (.12) $ (.04)
Weighted average number of
common shares outstanding . . . . . . 40,253 40,253
</TABLE>
The accompanying notes are an integral part of the interim consolidated
financial statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
<TABLE>
June 30, March 31,
1996 1996
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents . . . . . . . . . $ 17,508 $ 16,133
Accounts receivable (less allowances of
$4,426 and $6,139, respectively) . . . . . 17,908 23,583
Inventories . . . . . . . . . . . . . . . . 31,682 35,292
Prepaid expenses and other current assets . 9,979 10,306
Total current assets . . . . . . . . . . . 77,077 85,314
Property and equipment - (at cost less
accumulated depreciation and amortization
of $4,838 and $4,422, respectively) . . . . . 3,137 3,501
Other assets . . . . . . . . . . . . . . . . . 8,336 7,761
Total Assets . . . . . . . . . . . . . . . $ 88,550 $ 96,576
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable . . . . . . . . . . . . . . . $ 17,436 $ 21,151
Current maturities of long-term debt . . . . 138 173
Accounts payable and other current
liabilities . . . . . . . . . . . . . . . 11,533 10,391
Accrued sales returns . . . . . . . . . . . 2,672 3,091
Income taxes payable . . . . . . . . . . . . 187 202
Total current liabilities . . . . . . . . 31,966 35,008
Long-term debt . . . . . . . . . . . . . . . . 20,872 20,886
Other non-current liabilities . . . . . . . . 278 300
Shareholders' Equity:
Preferred stock - $.01 par value, 10,000,000
shares authorized, 10,000 shares issued
and outstanding . . . . .. . . . . . . . . 9,000 9,000
Common stock - $.01 par value, 75,000,000
shares authorized, 40,252,772. . . . . . . .
shares issued and outstanding. . . . . . . . 403 403
Capital in excess of par value . . . . . . . . 108,986 108,991
Accumulated deficit . . . . . . . . . . . . . (83,073) (78,175)
Cumulative translation adjustment . . . . . . 118 163
Total shareholders' equity . . . . . . . 35,434 40,382
Total Liabilities and Shareholders' Equity $ 88,550 $ 96,576
</TABLE>
The accompanying notes are an integral part of the interim consolidated
financial statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands of dollars)
<TABLE>
Three Months Ended
June 30,
1996 1995
<S> <C> <C>
Cash Flows from Operating Activities:
Net cash provided by operating
activities . . . . . . . . . . . . . . . . $ 5,308 $ 1,428
Cash Flows from Investing Activities:
Net cash provided (used) by investing
activities . . . . . . . . . . . . . . . 45 (1,177)
Cash Flows from Financing Activities:
Net repayments under line of
credit facility. . . . . . . . . . . . . . (3,715) (2,077)
Other . . . . . . . . . . . . . . . . . . . (263) (720)
Net cash used by financing
activities . . . . . . . . . . . . . . . . (3,978) (2,797)
Net increase (decrease) in cash and cash
equivalents . . . . . . . . . . . . . . . . 1,375 (2,546)
Cash and cash equivalents at beginning
of year. . . . . . . . . . . . . . . . . . . 16,133 17,020
Cash and cash equivalents at end of period . . $ 17,508(a) $14,474 (a)
Supplemental disclosure of cash flow information:
Interest paid . . . . . . . . . . . . . . . $ 815 $ 884
Income taxes paid . . . . . . . . . . . . . $ 15 $ 114
</TABLE>
(a) The balances at June 30, 1996 and 1995, include $9.0 million and $9.1
million of cash and cash equivalents, respectively, pledged to assure the
availability of certain letter of credit facilities.
The accompanying notes are an integral part of the interim consolidated
financial statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1
The unaudited interim consolidated financial statements reflect all
adjustments that management believes necessary to present fairly the results of
operations for the periods being reported. The unaudited interim consolidated
financial statements have been prepared pursuant to the rules and regulations of
the Securities and Exchange Commission and accordingly do not include all of the
disclosures normally made in the Emerson Radio Corp. (the "Company") annual
consolidated financial statements. It is suggested that these unaudited interim
consolidated financial statements be read in conjunction with the consolidated
financial statements and notes thereto for the year ended March 31, 1996,
included in the Company's annual Form 10-K filing.
The preparation of the unaudited interim consolidated financial statements
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from those estimates.
Due to the seasonal nature of the Company's consumer electronics business,
the results of operations for the three months ended June 30, 1996 are not
necessarily indicative of the results of operations for the full year ending
March 31, 1997.
NOTE 2
Net loss per common share for the three month periods ended June 30, 1996
and 1995 are based on the net loss and deduction of preferred stock dividend
requirements and the weighted average number of shares of common stock
outstanding during each period. The net loss per share for both periods does
not include common stock equivalents assumed outstanding since they are anti-
dilutive.
NOTE 3
The provision for income taxes for the three months ended June 30, 1995
consists primarily of taxes related to international operations. The benefit for
income taxes for the three months ended June 30, 1996 consists primarily of
domestic tax refunds received. The Company did not recognize tax benefits for
losses incurred by its domestic operations during the three months ended June
30, 1996 and 1995.
NOTE 4
Spare parts inventories, net of reserves, aggregating $1,920,000 and
$2,042,000 at June 30, 1996 and March 31, 1996, respectively, are included in
"Prepaid expenses and other current assets."
NOTE 5
Long-term debt consists of the following:
(In thousands of dollars)
<TABLE>
June 30, March 31,
1996 1996
<S> <C> <C>
8 1/2% Senior Subordinated Convertible
Debentures Due 2002 . . . . . . $20,750 $20,750
Other . . . . . . . . . . . . . . 260 309
21,010 21,059
Less current obligations. . . . . 138 173
$20,872 $20,886
</TABLE>
NOTE 6
The 30 million shares of Common Stock issued to GSE Multimedia Technologies
Corporation ("GSE"), Fidenas International Limited, L.L.C. ("FIN") and Elision
International, Inc. ("Elision") on March 31, 1994, pursuant to the bankruptcy
restructuring plan, were the subject of certain legal proceedings. On June 11,
1996, a Stipulation of Settlement and Order (the "Settlement Agreement") was
executed, which settles various legal proceedings in Switzerland, the Bahamas
and the United States among Mr. Jurick, Emerson's Chairman and Chief Executive
Officer, and his affiliated entities and certain of their creditors (the
"Creditors"). The Settlement Agreement provides, among other things, for the
payment by Mr. Jurick and his affiliated entities of $49.5 million to the
Creditors, to be paid from the proceeds of the sale of certain of the 29,152,542
shares of Emerson common stock (the "Settlement Shares") owned by affiliated
entities of Mr. Jurick. In addition, Mr. Jurick will be paid the sum of $3.5
million from the sale of such stock. The Settlement Shares will be sold over an
extended, but indeterminate, period of time by a financial advisor (the
"Advisor") to be proposed by Emerson and selected in consultation with Mr.
Jurick and the Creditors. Such Advisor will formulate a marketing plan taking
into consideration (i) the interests of Emerson's minority stockholders, and
(ii) the goal of generating sufficient proceeds to pay the Creditors and Mr.
Jurick as quickly as possible. The Settlement Shares will be divided into two
pools. The Pool A Shares initially will consist of 15,286,172 Emerson shares.
The Pool B Shares will consist of the number of Settlement Shares with respect
to which Mr. Jurick must retain beneficial ownership of voting power to avoid an
event of default arising out of a change of control pursuant to the terms of the
Company's Loan and Security Agreement with a U.S. financial institution (the
"Lender") and/or the indenture governing the Company's 8 1/2% Senior
Subordinated Convertible Debentures Due 2002 (the "Debentures"). Sales may
be made of the Settlement Shares pursuant to a registered offering if the
sales price is not less than 90% of the average of the three most recent
closing prices (the "Average Closing Price"), or, other than in a
registered offering, of up to 1% of the Emerson common stock
outstanding per quarter, if the sales price is not less than 90% of the Average
Closing Price. Any other attempted sales are subject to the consent of the
Company, Mr. Jurick and the Creditors, or, if necessary, the Court. The
Settlement Agreement will only become effective after, among other things,
receipt by the Court of certain share certificates currently held in foreign
jurisdictions and all documents required in the Settlement Agreement.
On May 10, 1996, International Jensen Incorporated ("Jensen") filed an
action in the United States District Court for the Northern District of
Illinois, Eastern Division, against the Company and its President, Eugene I.
Davis, for violations of proxy solicitation rules and for breach of a
confidentiality agreement with Jensen. On May 14, 1996, the Court entered a
temporary restraining order against the Company and its President, which
subsequently lapsed, enjoining them from (i) further solicitation of Jensen's
stockholders or their representatives until the Company has filed a Proxy
Statement with the Securities and Exchange Commission which complies with the
provisions of Regulation 14A of the Securities Exchange Act of 1934; (ii) making
further solicitation containing false and misleading or misleading statements of
material fact or material omissions; and (iii) disclosing confidential
information in violation of the confidentiality agreement. On May 20, 1996, the
Company filed a counterclaim and third party complaint in this action alleging
that Jensen and its Chairman, Chief Executive Officer and President, Robert G.
Shaw, fraudulently induced the Company to enter into a confidentiality agreement
and failed to negotiate with the Company in good faith. In its counterclaim and
third party complaint, the Company requests such other equitable or other relief
as the Court finds proper and an award of attorneys' fees and expenses. On
July 2, 1996, the Company amended its third party complaint to include Recoton
Corporation ("Recoton"), the competing bidder for Jensen, and William Blair
Leveraged Capital Fund, L.P. ("Blair") for conspiring in the actions of Jensen
and Mr. Shaw. The Company voluntarily dismissed Blair, without prejudice, on
August 2, 1996. On August 8, 1996, the Company filed a Second Amended
Counterclaim and Third Party Complaint with the Chicago Federal Court
alleging that disclosures and omissions in Jensen's proxy materials
consitituted violations of the antifraud provisions of the federal proxy rules
and seeking a temporary restraining order to enjoin Jensen from holding its
August 28, 1996 Special Meeting of Stockholders to approve the Recoton/Shaw
transactions and from utilizing any proxies solicited pursuant to such allegedly
materially misleading proxy materials. Jensen has sought to have the Court
abstain from deciding this matter. The Court has not yet ruled on whether it
will abstain. The Company and its President intend to vigorously defend
Jensen's claims against the Company and its President and to vigorously
pursue its counterclaim against Jensen and its third party complaint against
Mr. Shaw and Recoton. The Company believes that Jensen's claims are without
basis, that it has meritorious defenses against Jensen's claim and that the
litigation or results thereof will not have a material adverse effect on the
Company's consolidated financial position.
On July 30, 1996, the Company filed a complaint in the Court of Chancery of
the State of Delaware against Jensen, all of its directors, Blair, Recoton, and
certain affiliates of the foregoing alleging violations of Delaware law
involving Jensen's auction process, interference with prospective economic
advantage, and aiding and abetting breaches of fiduciary duties. In particular,
the complaint seeks an order enjoining the consummation of the Jensen/Recoton
merger and the sale of Jensen's Original Equipment Manufacturing business to Mr.
Shaw. The complaint also seeks to require Jensen and its Board of Directors to
provide relevant due diligence materials to the Company and to engage in good
faith negotiations with the Company by asking the Court to order Jensen and its
Board of Directors to conduct a fair auction on a level playing field. The
Company is also requesting the Court to award damages and further relief as
would be just and equitable. The Court ordered expedited discovery and held a
hearing on the matter and on a motion for preliminary injunction filed on behalf
of Jensen's stockholders on August 15, 1996. The Court has not yet rendered its
decision.
On December 20, 1995, the Company filed suit in the United States District
Court for the District of New Jersey against Orion Sales, Inc., Otake Trading
Co. Ltd., Technos Development Limited, Shigemasa Otake, and John Richard Bond,
Jr., (collectively, the "Otake Defendants") alleging breach of contract, breach
of covenant of good faith and fair dealing, unfair competition, interference
with prospective economic gain, and conspiracy in connection with certain
activities of the Otake Defendants under certain agreements between the Company
and the Otake Defendants. Mr. Bond is a former officer and sales representative
of the Company, having served in the latter capacity until he became involved
working for the other Otake Defendants. Certain of the other Otake Defendants
have supplied the majority of the Company's purchases until the Company's most
recent fiscal year ended March 31, 1996.
On December 21, 1995, Orion Sales, Inc. and Orion Electric (America), Inc.
filed suit against the Company in the United States District Court,
Southern District of Indiana, Evansville Division, alleging
various breaches of certain agreements by the Company, including
breaches of the confidentiality provisions, certain payment breaches, breaches
of provisions relating to product returns, and other alleged breaches of those
agreements, and seeking damages in the amount of $2,452,656, together with
interest thereon, attorneys' fees, and certain other costs. While the outcome
of the New Jersey and Indiana actions are not certain at this time, the Company
believes it has meritorious defenses against the claims made by the plaintiffs
in the Indiana action. In any event, the Company believes the results of that
litigation should not have a material adverse effect on the financial condition
of the Company or on its operations.
The Company is presently engaged in litigation regarding several bankruptcy
claims which have not been resolved since the restructuring of the Company's
debt. The largest claim was filed July 25, 1994 in connection with the
rejection of certain executory contracts with two Brazilian entities, Cineral
Electronica de Amazonia Ltda. and Cineral Magazine Ltda. (collectively,
"Cineral"). The contracts were executed in August 1993, shortly before the
Company's filing for bankruptcy protection. The amount claimed was $93,563,457,
of which $86,785,000 represents a claim for lost profits and $6,400,000 for
plant installation and establishment of offices, which were installed and
established prior to execution of the contracts. The claim was filed as an
unsecured claim and, therefore, will be satisfied, to the extent the claim is
allowed by the Bankruptcy Court, in the manner other allowed unsecured claims
were satisfied. The Company has objected to and has vigorously contested the
claim and believes it has meritorious defenses to the highly speculative portion
of the claim for lost profits and the portion of the claim for actual damages
for expenses incurred prior to the execution of the contracts. Additionally, on
or about September 30, 1994, the Company instituted an adversary proceeding in
the Bankruptcy Court asserting damages caused by Cineral and seeking declaratory
relief and replevin. A motion filed by Cineral to dismiss the adversary
proceeding has been denied. The adversary proceeding and claim objection have
been consolidated into one proceeding an discovery commenced. This action has
been stayed since June 1995 by order of the Bankruptcy Court pending settlement
negotiations. An adverse final ruling on the Cineral claim could have a
material adverse effect on the Company, even though it would be limited to 18.3%
of the final claim determined by a court of competent jurisdiction; however,
with respect to the claim for lost profits, in light of the foregoing, the
Company believes the chances for recovery for lost profits are remote.
NOTE 7
The Company has a 50% investment in E & H Partners, a joint venture that
purchases, refurbishes and sells certain of the Company's product returns. The
results of this joint venture are accounted for by the
equity method. The Company's equity in the earnings of the joint venture is
reflected as a reduction of cost of sales in the Company's unaudited interim
Consolidated Statements of Operations. Summarized financial information relating
to the joint venture is as follows (in thousands):
Three Months Ended June 30,
1996 1995
<TABLE>
<S> <C> <C>
Income Statement data:
Net Sales (a) $10,405 $ 7,274
Net Earnings 580 919
Sales by the Company 2,819 7,989
to E&H Partners
June 30, March 31,
1996 1996
Balance Sheet Data:
Current assets (b) $17,121 $19,326
Noncurrent assets 181 162
Total Assets $17,302 $19,488
Accounts Payable to the
Company (b) $ 6,471 $13,270
Other Current liabilities 7,721 3,688
Total Liabilities 14,192 16,958
Partnership Equity 3,110 2,530
Total Liabilities and
Partnership Equity $17,302 $19,488
Equity of the Company in net
assets of E&H Partners $ 1,555 $ 1,265
</TABLE>
(a) Includes sales to the Company of $3,971,000 and $1,425,000, respectively.
(b) Inventories of the Partnership had been assigned to the Lender as
collateral for the U.S. line of credit facility. In April 1996, the Company
agreed to equally share the lien on the partnership's inventory with the other
party in the joint venture, in exchange for, among other things, a $5.0 million
loan by such partner to the joint venture and a subsequent partial paydown of
E&H Partners' obligation to the Company of the same amount.
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
This report contains forward-looking statements under the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"). The Company's actual results
may differ from the results discussed in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in this report. See Other Information - Part II, Item 5.
GENERAL
Effective March 31, 1995, the Company and one of its suppliers and certain
of its affiliates (collectively, the "Supplier"), entered into two mutually
contingent agreements (the "Agreements"). The Company granted a license of
certain trademarks to the Supplier for a three-year term. The license permits
the Supplier to manufacture and sell certain video products under the
Emerson trademark to the Company's largest customer (the "Customer"), in
the U.S. and Canada. As a result, the Company is receiving royalties
attributable to such sales over the three-year term of the Agreements
in lieu of reporting the full dollar value of such sales and associated costs.
The Company continues to supply other products to the Customer directly.
Further, the Agreements provide that the Supplier will supply the Company with
certain video products for sale to other customers at preferred prices for a
three-year term. Under the terms of the Agreements, the Company will receive
non-refundable minimum annual royalties from the Supplier to be credited against
royalties earned from sales of video cassette recorders and players,
television/video cassette recorder and player combination units, and color
televisions to the Customer. In addition, effective August 1, 1995, the Supplier
assumed responsibility for returns and after-sale and warranty services on all
video products manufactured by the Supplier and sold to the Customer, including
video products sold by the Company prior to August 1, 1995. As a result, the
impact of sales returns on the Company's operating results have been
significantly reduced, effective with the quarter ended September 30, 1995. The
Company has reported lower direct revenues in the quarters ended June 30, 1996
and 1995 as a result of the Agreements, but its net operating results for such
periods have not been impacted negatively. The Company has realized and expects
to continue to realize a more stable cash flow over the three-year term of the
Agreements, as well as reduced short-term borrowings necessary to finance
accounts receivable and inventory, thereby reducing interest costs.
Additionally, the Company's gross margins are expected to improve as the change
in mix to higher margin products and a reduction in costs for product returns
(which have historically been higher for certain video products) take hold. The
Company and the Supplier are currently involved in litigation over certain
matters concerning the terms of the Agreements.
The Company's operating results and liquidity are impacted by the
seasonality of its business. The Company records the majority of its annual
sales in the quarters ending September 30 and December 31 and receives the
largest percentage of customer returns in the quarters ending March 31 and
June 30. Therefore, the results of operations discussed below are not
necessarily indicative of the Company's prospective annual results of
operations.
RESULTS OF OPERATIONS
Consolidated net revenues for the three month period ended June 30, 1996
decreased $15,911,000 (28%) as compared to the same period in the fiscal year
ended March 31, 1996 ("Fiscal 1996"). The decrease resulted from decreases in
unit sales of video cassette recorders, televisions and television/video
cassette recorder combination units, audio products and microwave ovens due to
higher retail stock levels, increased price competition in these product
categories, weak consumer demand and a soft retail market. This was partially
offset by sales of home theater and car audio products which were not introduced
until the second half of Fiscal 1996. Revenues earned from the licensing of the
Emerson Radio trademark were $1,002,000 and $1,044,000 in the three month
periods ended June 30, 1996 and 1995, respectively. Furthermore, the Company's
Canadian sales decreased $2.5 million relating to the continued weak Canadian
economy, partially offset by an increase in European sales to the Company's new
distributor in Spain. Although the Company expects its United States sales for
the quarter ending September 30, 1996 to be lower than the second quarter of
Fiscal 1996 due to continuing weak consumer demand and the increased level of
price competition, the Company is focusing on improving its margins on such
sales by emphasizing higher margin products.
Cost of sales, as a percentage of consolidated revenues, was 94% for the
three month period ended June 30, 1996 as compared to 89% for the same period in
Fiscal 1996. Gross profit margins in the three month period ended June 30,
1996 were unfavorably impacted by a change in product mix, lower sales prices
(primarily video products), the allocation of reduced fixed costs over a lower
sales base in the current fiscal year, and the recognition of income relating to
reduced reserve requirements for sales returns in the first quarter of Fiscal
1996. However, gross profit margins were favorably impacted by a reduction in
the costs associated with product returns related to the Company's agreements
with a majority of its suppliers to return defective products and receive in
exchange an "A" quality unit.
Other operating costs and expenses declined $683,000 in the three month
period ended June 30, 1996 as compared to the same period in Fiscal 1996,
primarily as a result of a decrease in expenses formerly incurred to process
product returns which are now subject to the Agreements with the Supplier.
Selling, general and administrative expenses ("S,G&A") as a percentage of
revenues, was 13% for the three month period ended June 30, 1996, as compared to
9% for the same period in Fiscal 1996. In absolute terms, S,G&A increased by
$122,000 in the three month period ended June 30, 1996 as compared to the same
period in Fiscal 1996. The increase was primarily attributable to a decrease in
foreign currency exchange gains, unrealized losses incurred on investment
securities and an increase in advertising incentives to stimulate sales,
partially offset by a reduction in fixed costs and compensation expense relating
to the Company's downsizing program in both the U.S. and in its foreign offices,
and lower selling expenses attributable to the lower sales. The increase in the
S,G&A as a percentage of revenues is due primarily to the allocation of fixed
S,G&A costs over a lower sales base. Additionally, the Company's exposure to
foreign currency fluctuations, primarily in Canada and Spain, resulted in the
recognition of net foreign currency exchange gains aggregating $14,000 and
$432,000 in the three month periods ended June 30, 1996 and 1995, respectively.
Interest expense increased by $190,000 in the three month period ended June
30, 1996 as compared to the same period in Fiscal 1996. The increase was
attributable to the interest expense associated with the Debentures issued in
August 1995, partially offset by the lower average borrowings at lower interest
rates on the U.S. revolving line of credit facility. The average rate in effect
on the credit facility for the three month periods ended June 30, 1996 and 1995
was approximately 9.5% and 11.25%, respectively.
As a result of the foregoing factors, the Company incurred a net loss of
$4,723,000 for the three month period ended June 30, 1996, compared to a net
loss of $1,401,000 for the same period in Fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $5,308,000 for the three
months ended June 30, 1996. Cash was provided by decreases in accounts
receivables and inventories partially offset by a loss from operations. The
decrease in accounts receivable was due primarily to a one-time receipt of $5.0
million from the Company's 50% owned joint venture (E & H Partners) in the
current quarter as a partial paydown of joint venture's obligation to the
Company. The decrease in inventory is primarily due to a more cautious
purchasing strategy focusing on reducing inventory levels and the associated
carrying costs.
Net cash provided by investing activities was $45,000 for the three months
ended June 30, 1996.
In the three months ended June 30, 1996, the Company's financing activities
utilized $3,978,000 of cash. The Company reduced its borrowings under its U.S.
line of credit facility by $3,715,000 through the collection of accounts
receivable.
The Company maintains an asset-based revolving line of credit facility, as
amended, with a U.S. financial institution (the "Lender"). The facility provides
for revolving loans and letters of credit, subject to individual maximums and,
in the aggregate, not to exceed the lesser of $60 million or a "Borrowing Base"
amount based on specified percentages of eligible accounts receivable and
inventories. All credit extended under the line of credit is secured by the U.S.
and Canadian assets of the Company except for trademarks, which are subject to a
negative pledge covenant. The interest rate on these borrowings is 1.25% above
the stated prime rate. At June 30, 1996, there were approximately $17.4 million
outstanding on the Company's revolving loan facility. At June 30, 1996, the
Company's letter of credit facility was not utilized. Based on the "Borrowing
Base" amount at June 30, 1996, $7,085,000 of the credit facility was not
utilized. Pursuant to the terms of the credit facility, as amended, effective
June 30, 1996, the Company is required to maintain a minimum adjusted net worth,
as defined, of $30,000,000. At June 30, 1996, the Company had an adjusted net
worth of $35,434,000.
The Company's Hong Kong subsidiary maintains various credit facilities
aggregating $62.1 million with a bank in Hong Kong consisting of the following:
(i) a $12.1 million credit facility generally used for letters of credit for a
foreign subsidiary's direct import business and affiliates' inventory
purchases, and (ii) a $50 million credit facility, for the benefit of a
foreign subsidiary, which is for the establishment of back-to-back letters of
credit with the Customer. At June 30, 1996, the Company's Hong Kong
subsidiary had pledged $4 million in certificates of deposit to this
bank to assure the availability of these credit facilities. At June 30, 1996,
there were approximately $7.7 million and $9.0 million of letters of credit
outstanding on the $12.1 million and $50 million credit facilities,
respectively.
The Company's Hong Kong subsidiary maintained an additional credit facility
with another bank in Hong Kong. The facility provided for a $10 million line of
credit for documentary letters of credit and a $10 million back-to-back letter
of credit line collateralized by a $5 million certificate of deposit. At June
30, 1996, the Company's Hong Kong subsidiary had pledged $5.0 million in
certificates of deposit to assure the availability of this credit facility. At
June 30, 1996, this credit facility was not utilized. The Company recently
terminated such facility.
Since the emergence of the Company from bankruptcy, management believes it
has been able to compete more effectively in the highly competitive
consumer electronics and microwave oven industries in the United States and
Canada by combining innovative approaches to the Company's current
product line, such as value-added promotions, and augmenting its product
line with higher margin complementary products. The Company also
intends to engage in the marketing of distribution, sourcing and other services
to third parties. In addition, the Company intends to undertake efforts to
expand the international distribution of its products into areas where
management believes low to moderately priced, dependable consumer electronics
and microwave oven products will have a broad appeal. The Company has in the
past and intends in the future to pursue such plans either on its own or by
forging new relationships, including license arrangements, partnerships, joint
ventures or strategic mergers and acquisitions of companies in similar or
complementary businesses.
In prior years, the Company successfully concluded licensing agreements for
certain business products and intends to pursue additional licensing
opportunities and believes that such licensing activities will have a positive
impact on net operating results by generating royalty income with minimal costs,
if any, and without the necessity of utilizing working capital or accepting
customer returns. The Company is also considering strategic alternatives for
its North American video business not covered under the license agreement with
the Supplier.
Management believes that future cash flow from operations and the
institutional financing described above will be sufficient to fund all of the
Company's cash requirements for the next year.
The Company's liquidity is impacted by the seasonality of its business.
The Company records the majority of its annual sales in the quarters ending
September 30 and December 31. This requires the Company to open significantly
higher amounts of letters of credit during the quarters ending June 30 and
September 30, therefore significantly increasing the Company's working capital
needs during these periods. Additionally, the Company received the largest
percentage of customer returns in the quarter ending March 31. The higher level
of returns during this period adversely impacts the Company's collection
activity during this period, and therefore its liquidity. The Company believes
that the Agreements with the Supplier (as noted above) and the "return-to-
vendor" agreements should favorably impact the Company's cash flow over their
respective terms.
EMERSON RADIO CORP. AND SUBSIDIARIES
PART II
OTHER INFORMATION
ITEM 1. Legal Proceedings.
The information required by this item is included in Notes
6 and 7 of Notes to Interim Consolidated Financial Statements
filed in Part I of Form 10-Q for the quarter ended June 30, 1996,
and is incorporated herein by reference.
ITEM 5. Other Information.
(a) Certain statements in this quarterly report on Form 10-
Q under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and elsewhere in
this quarterly report and in future filings by the Company with
the Securities and Exchange Commission, constitute "forward
looking statements" with the meaning of the Reform Act. Such
forward looking statements involve known and unknown risks,
uncertainties, and other factors which may cause the actual
results, performance or achievements of the Company to be
materially different from any future results, performance or
achievements expressed or implied by such forward looking
statements. Such factors include, among others, the following:
general economic and business conditions; competition; success of
operating initiatives; operating costs; advertising and
promotional efforts; brand awareness; the existence or absence of
adverse publicity; changes in business strategy or development
plans; quality of management; availability, terms and deployment
of capital; business abilities and judgment of personnel;
availability of qualified personnel; labor and employee benefit
costs; changes in, or the failure to comply with, government
regulations and other factors referenced in this quarterly
report.
(b) The Company and Starr Securities, Inc. ("Starr")
entered into a one-year consulting agreement dated as of August
1, 1996. Pursuant to the consulting agreement, Starr agreed to
provide financial consulting services in exchange for $5,000 per
month and stock purchase warrants to be issued to Starr, and/or
representatives of Starr it so designates (see Exhibits 10b, 10c
and 10d below). The stock purchase warrants were issued to Starr
and two of its representatives and entitles the holders thereof
to purchase an aggregate of 250,000 shares of the Company's
common stock at an exercise price of $4.00 per share, and expire
on August 1, 2001.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
10(a) Consulting Agreement, dated as
of August 1, 1996 between Emerson Radio Corp.
("Emerson") and Starr Securities, Inc.
10(b) Common Stock Purchase Warrant
Agreement to purchase 125,000 shares of Common
Stock, dated as of August 1, 1996 between
Emerson and Starr Securities, Inc.
10(c) Common Stock Purchase Warrant
Agreement to purchase 110,000 shares of Common
Stock, dated as of August 1, 1996 between
Emerson and Arthur Stern, III.
10(d) Common Stock Purchase Warrant
Agreement to purchase 15,000 shares of Common
Stock, dated as of August 1, 1996 between
Emerson and Arthur Stern, IV.
(b) Reports on Form 8-K:
(1) During the three month period
ended June 30, 1996, no Form 8-K was filed.
EMERSON RADIO CORP. AND SUBSIDIARIES
PART II
OTHER INFORMATION - CONTINUED
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EMERSON RADIO CORP.
(Registrant)
Date: August 20, 1996 /s/ Eugene I. Davis
Eugene I. Davis
President
Date: August 20, 1996 /s/ Eddie Rishty
Eddie Rishty
Senior Vice President - Controller
and Logistics (Chief Accounting Officer)
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> JUN-30-1996
<CASH> 17,508
<SECURITIES> 1,683
<RECEIVABLES> 17,979
<ALLOWANCES> 1,155
<INVENTORY> 31,682
<CURRENT-ASSETS> 77,076
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CONSULTING AGREEMENT
This Consulting Agreement, dated as of August 1, 1996 is between Emerson
Radio Corp., a Delaware corporation ("Company"), and Starr Securities, Inc., a
New York corporation ("Consultant").
WITNESSETH:
WHEREAS, Company desires to contract with Consultant for certain
consulting services, and Consultant is willing to render such services as
hereinafter more fully set forth;
NOW, THEREFORE, in consideration of the mutual agreements and covenants
set forth in this Agreement, the parties hereto hereby agree as follows:
1. ENGAGEMENT OF CONSULTANT. Company hereby engages and retains
Consultant to render to Company the consulting services described in Section 2
hereof (the "Consulting Services") for the period commencing on the date hereof
and ending on the first anniversary hereof (the "Consulting Period").
Consultant represents and warrants that it is a corporation incorporated and
organized under the laws of the State of New York, is qualified to do business
in all jurisdictions where required and is in good standing in its state of
incorporation and all other jurisdictions in which it is required to
qualify to do business and has full corporate power and authority to enter into
this Agreement and to comply with its obligations hereunder. Consultant also
represents and warrants that it is duly licensed by and is a member in good
standing with the National Association of Securities Dealers, Inc., and is duly
licensed as a broker or dealer in all states in which it will conduct business
under this Agreementis required to be so licensed.
2. DESCRIPTION OF CONSULTING SERVICES. The Consulting Services rendered
by Consultant hereunder will consist of consultations with management of Company
as such management may from time to time require during the term of this
Agreement. Such consultation will be with respect to the operation and
financing of Company's business, Company's relations with its securities holders
and such other matters as may be agreed upon between Company and Consultant. In
addition to such consultation, Company may request that Consultant attend
meetings of Company's Board of Directors, or review, analyze, and report on
proposed investment policies and/or public and private financing. Consultant
acknowledges and agrees that its employees or consultants may be required to
travel out of the New York City metropolitan area but only if Company has given
Consultant oral or written notice to do so a reasonable time prior to such
required travel.
3. COMPENSATION FOR SERVICES RENDERED. As compensation for the Consulting
Services provided for herein, Company agrees to pay to Consultant the sum of
$5,000 per month for the term of this Agreement and to deliver to Consultant
and/or employees of or consultants of to Consultant (hereinafter,
collectively "Consultant") designated by Consultant upon execution and delivery
of this Agreement, a stock warrant agreement or agreements ("Warrants")
substantially in the form attached hereto as Exhibit A. Such Warrant(s) will
grant to Consultant or its permitted designees the right to purchase an
aggregate of 250,000 shares of Company's Common Stock at a price of $4.00 per
share during a period of five years after the date hereof. The Warrants will
vest and be exercisable, pro rata to Consultant and its permitted designees, if
any, on the basis of the number of shares of Common Stock subject to the
Warrants when originally granted to Consultant and such designees, for the
following aggregate amount of shares in accordance with the following schedule:
(i) the Warrants will vest and may be exercised after six months from the date
hereof to purchase 125,000 shares and (ii) the Warrants will vest and may be
exercised after the first anniversary of this Agreement to purchase an
additional 125,000 shares. Company also agrees to reimburse Consultant for its
reasonable expenses in complying with its obligations under this Agreement, but
subject to the prior written approval of Company in accordance with its
customary practices and procedures.
4. NONEXCLUSIVITY OF THIS AGREEMENT. Company expressly understands and
agrees that Consultant will not be prevented or barred from rendering services
of the same nature as or a similar nature to those described herein, or of any
nature whatsoever, for or on behalf of any person, firm, corporation or entity
other than Company. Consultant understands and agrees that Company will not be
prevented or barred from retaining other persons or entities to provide services
of the same nature as or similar nature to those described herein or of any
nature whatsoever. Consultant may also perform services for Company other than
those contained in this Agreement for such compensation and under such terms and
conditions as may be agreed upon in writing by Company and Consultant.
5. CONFIDENTIALITY. Consultant acknowledges that certain information
provided to Consultant by Company may be of a confidential nature which Company
has developed for its own internal use ("Confidential Information"). Such
Confidential Information, if disclosed to Consultant, will be disclosed on a
confidential basis subject to the following terms and conditions:
(a) Consultant recognizes and acknowledges (i) the competitive
value and confidential nature of the Confidential Information and the
damage that could result to Company if information contained therein is
disclosed to any unauthorized third party, (ii) that, by virtue of its
knowledge of the Confidential Information, Consultant may be deemed an
"insider" as that term is defined or utilized under state and or federal
securities laws and (iii) that the disclosure of Confidential Information
by Consultant may violate state and federal securities laws. The
Confidential Information will be used solely for providing Consulting
Services hereunder and will not be used by Consultant in any way
detrimental to Company.
(b) The Confidential Information will be revealed only to those
persons whose knowledge of the information is required to allow Consultant
to perform its duties hereunder.
(c) During the Consulting Period and for a period of three years
after its termination, Consultant will not proceed with, cause or assist in
any manner any transaction or offer looking to the acquisition directly or
indirectly by purchase or otherwise of Company or any interest in or asset
of Company except if the Company so requests in writing.
(d) Notwithstanding anything to the contrary set forth herein,
if Consultant is requested or becomes legally compelled to disclose any of
the Confidential Information hereunder or to take any other action
prohibited hereby, Consultant will provide Company with prompt written
notice so that Company may seek a protective order or other appropriate
remedy and/or waive compliance with the provisions of this Agreement. If
such protective order or other remedy is not obtained or Company waives in
writing compliance with provisions of this Agreement, Consultant will
furnish only that portion of the Confidential Information that is
legally required to be furnished.
(e) Consultant will be responsible for any breach of the
provisions hereof by Consultant (including its employees, affiliates and
consultants) or any other person to whom Consultant makes disclosures
unless disclosure to such other person was authorized by the Company prior
to such disclosure.
(f) It is agreed and understood that Confidential Information
does not include information 1.) which Consultant can establish was or
becomes generally available to the public other than as a result of a
disclosure by the Consultant, (including its employees, affiliates and
consultants) or any other person to whom Consultant makes disclosures in
accordance with the provisions of this Agreement or 2.) was or becomes
available to Consultant from a source other than the Company, provided that
such source is not, to the best of Consultant's knowledge, subject to a
confidentiality agreement with the Company.
6. DISCLAIMER OF RESPONSIBILITY FOR ACTS OF COMPANY. The obligations of
Consultant described in this Agreement consist solely of the furnishing of
information and advice to Company. Consultant's status hereunder is that of
independent contractor and in no event will Consultant be required or permitted
by this Agreement to act as the agent or employee of Company or otherwise to
represent or make decisions for Company. All final decisions with respect to
acts of Company or its affiliates, whether or not made pursuant to or in
reliance on information or advice furnished by Consultant hereunder, will be
those of Company or such affiliates and Consultant will under no circumstances
be liable for any claims, costs, expenses, damages or causes of action
incurred or suffered by Company or its affiliates or agents as a
consequence of such decisions. Similarly, Company will under no circumstances
be liable for any expense incurred or loss suffered by Consultant, its
affiliates, or agents as a result of actions taken by Consultant hereunder or
for any claims, costs, expenses, damages or causes of action arising out of any
actions or omissions of Consultant which are beyond the scope of Consultant's
authority hereunder. In acting pursuant to this Agreement, Consultant agrees to
comply with all applicable laws, including the Securities Act of 1933, the
Securities Exchange Act of 1934, state securities laws and the rules and
regulations thereunder.
7. AMENDMENT. No amendment to this Agreement will be valid unless such
amendment is in writing and is signed by authorized representatives of all the
parties to this Agreement.
8. WAIVER. Any of the terms and conditions of this Agreement may be
waived at any time and from time to time in writing by the party entitled to the
benefit thereof, but a waiver in one instance will not be deemed to constitute a
waiver in any other instance. A failure to enforce any provision of this
Agreement will not operate as a waiver of the provision or of any other
provision hereof.
9. SEVERABILITY. If any provision of this Agreement will be held to be
invalid, illegal or unenforceable in any circumstances, the remaining provisions
will nevertheless remain in full force and effect and will be construed as if
the unenforceable portion or portions were deleted.
10. GOVERNING LAW. This agreement will be governed by and construed and
enforced in accordance with the laws of the State of New Jersey, without regard
to the conflict of law provisions thereof.
11. CHOICE OF FORUM. The parties hereto agree that should any suit,
action or proceeding arising out of this Agreement be instituted by any party
hereto (other than a suit, action or proceeding to enforce or realize upon any
final court judgment arising out of this Agreement), such suit, action or
proceeding will be instituted only in a state or federal court in Essex County,
New Jersey. Each of the parties hereto consents to the personal jurisdiction of
any state or federal court in Essex County, New Jersey and waives any objection
to the venue of any such suit, action or proceeding. The parties hereto
recognize that courts outside Essex County, New Jersey may also have
jurisdiction over suits, actions or proceedings arising out of this Agreement,
and in the event that any party hereto will institute a proceeding involving
this Agreement in a jurisdiction outside Essex County, New Jersey, the party
instituting such proceeding will indemnify any other party hereto for any losses
and expenses that may result from the breach of the foregoing covenant to
institute such proceeding only in a state or federal court in Essex County, New
Jersey, including without limitation any additional expenses incurred as a
result of litigating in another jurisdiction, such as reasonable fees and
expenses of local counsel and travel and lodging expenses for parties,
witnesses, experts and support personnel.
12. SERVICE OF PROCESS. Service of any and all process that may be served
on any party hereto in any suit, action or proceeding arising out of this
Agreement may be made in the manner and to the address set forth in Section 13
and service thus made will be taken and held to be valid personal service upon
such party by any party hereto on whose behalf such service is made.
13. NOTICES. All notices, requests, payments, instructions, claims or
other communications hereunder will be in writing and will be deemed to be given
or made when delivered by first-class, registered or certified mail to the
following address or addresses or such other address or addresses as the parties
may designate in writing in accordance with this Section:
If to Company:
Emerson Radio Corp.
Nine Entin Road
Parsippany, New Jersey 07054-0430
Attn: President
If to Consultant:
Starr Securities, Inc.
19 Rector Street
New York, New York 10006
Attn: President
14. ASSIGNMENT. This Agreement will be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns. This
Agreement contemplates personal services and may not be assigned by Consultant
without the prior written consent of Company.
15. EXECUTION IN COUNTERPARTS. This Agreement may be executed by the
parties in separate counterparts, each of which when so executed and delivered
will be deemed to be an original and all of which when taken together will
constitute one and the same agreement.
STARR SECURITIES, INC. EMERSON RADIO CORP.
By: /s/ Martin Vegh, President By: /s/ Eugene I. Davis
(Name) (Title) Eugene I. Davis,
President
THE GRANT OF THIS WARRANT AND THE PURCHASE OF THE COMMON STOCK ISSUABLE UPON
EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM.
COMMON STOCK PURCHASE WARRANT AGREEMENT
This COMMON STOCK PURCHASE WARRANT AGREEMENT (the "Warrant Agreement")
is entered into effective as of the 1st day of August, l996, by and between
EMERSON RADIO CORP., a Delaware corporation (the "Company"), and STARR
SECURITIES, INC., a New York corporation ("Starr" or "Holder").
WHEREAS, on even date herewith, the Company and Starr entered into
that certain Consulting Agreement (the "Consulting Agreement") whereby the
Company engaged Starr to render to the Company certain consulting services more
particularly described in Section 2 thereof (the "Consulting Services"); and
WHEREAS, in consideration for the Consulting Agreement and for the
Consulting Services to be provided thereunder, the Company has agreed to issue
to Starr, and/or employees or consultants of Starr designated by it upon its
execution and delivery of the Consulting Agreement, Common Stock Purchase
Warrants (the "Warrants") to purchase an aggregate of 250,000 shares of the
Company's common stock, par value $0.01 per share (the "Common Stock"), pursuant
to the requirements relating to the exercise thereof set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrants and the respective rights and obligations thereunder,
the parties hereto agree as follows:
1. GRANT OF WARRANTS. For value received, the Company hereby grants
Holder, subject to the terms and conditions hereinafter set forth, the right to
purchase up to a maximum of 125,000 shares of the Common Stock of the Company
(the "Shares"), subject to adjustment as set forth herein.
2. EXERCISE OF WARRANTS. The Warrants will vest and may be exercised
by the Holder as to (i) 50% of the Shares covered hereby at any time after
February 1, 1997, and (ii) all or any part of the Shares covered hereby at any
time after August 1, 1997, in either event until August 1, 2001, when such
Warrants shall expire, at an exercise price of $4.00 per share ("Warrant
Exercise Price"). The Holder shall deliver to the Company written notice of
Holder's intent to exercise the Warrants at Nine Entin Road, Parsippany, New
Jersey 07054-0430, or at such other address as the Company shall designate in
writing to the Holder, together with this Warrant Agreement and a check payable
to the order of the Company for the aggregate purchase price of the Shares so
purchased. Upon exercise of the Warrants as aforesaid, the Company shall as
promptly as practicable, and in any event within 10 days thereafter, execute and
deliver to the Holder a certificate or certificates in the name of the Holder
for the total number of whole Shares for which the Warrants are being exercised.
If the Warrants shall be exercised with respect to less than all of the Shares,
the Holder shall be entitled to receive a similar warrant of like tenor and date
covering the number of Shares in respect of which the Warrants were not
exercised. The Warrants covered by this Warrant Agreement shall lapse and be
null and void if not exercised by the Holder on or before 5:00 p.m., New York
City time, on August 1, 2001.
3. COVENANTS OF THE COMPANY. The Company covenants and agrees that
all the Shares which may be issued upon the exercise of the Warrants represented
by this Warrant Agreement will, upon issuance, be fully paid and nonassessable
and free from all taxes, liens, and charges with respect to the issue thereof
(other than taxes in respect of any transfer occurring contemporaneously with
such issue). The Company further covenants and agrees that during the period
within which the Warrants represented by this Warrant Agreement may be
exercised, the Company will at all times have authorized and reserved a
sufficient number of Shares to provide for the exercise of the Warrants
represented by this Warrant Agreement.
4. ADJUSTMENTS OF WARRANT EXERCISE PRICE AND NUMBER OF SHARES.
(a) If the Company shall, without the payment of new value, at any
time declare a stock dividend on its outstanding shares of Common Stock or
effectuate a stock split or reverse stock split, by subdivision or consolidation
in any manner, regarding the number of shares of the Common Stock then
outstanding into a different number of shares of the Common Stock, with or
without par value, then thereafter the number of Shares which the holder shall
have the right to purchase (calculated immediately prior to such change), shall
be increased or decreased, as the case may be, in direct proportion to the
increase or decrease in the number of shares of the Common Stock of the Company
issued and outstanding by reason of such dividend or change, and the Warrant
Exercise Price of the Shares after such change shall in the event of an increase
in the number of shares of the Common Stock be proportionately reduced, and in
the event of a decrease in the number of shares of the Common Stock be
proportionately increased.
(b) Notwithstanding anything herein to the contrary, for purposes
of this Section 4, the Holder agrees that no adjustment shall be made to the
Warrant Exercise Price or the number of Shares issuable upon the exercise of
this Warrant Agreement upon issuance of Common Stock (or any other securities)
of the Company for any purposes other than as set forth in Sections 4(a) and 5
herein.
5. SURVIVAL IN THE EVENT OF MERGERS AND REORGANIZATIONS. In the
event of the reclassification or change in the outstanding Common Stock (other
than a change in par value, or from par value to no par value, or from no par
value to par value, or as a result of a subdivision, combination or stock
dividend), or in the event of a sale of all or substantially all of the assets
of the Company, or in the event of any consolidation of the Company with, or
merger of the Company into, another corporation, the Company, or such successor
corporation, as the case may be, shall provide that, the Holder shall thereafter
be entitled to purchase the kind and amount of shares of stock and other
securities and property receivable upon such reclassification, change,
consolidation, sale, or merger by a holder of the number of Shares which this
Warrant Agreement entitled the holder thereof to purchase immediately prior to
such reclassification, change, consolidation, sale, or merger. Such
corporation, which thereafter shall be deemed to be the Company for purposes of
this Warrant Agreement, shall provide for adjustments, if any, which shall be as
nearly equivalent as may be practicable to the adjustments provided for in this
Warrant Agreement.
6. SALE OF ASSETS, DISSOLUTION. In the event of a sale of all or
substantially all the assets of the Company, or in the event of any distribution
of all or substantially all of its assets in dissolution or liquidation, or in
the event of any other distribution or dividend (other than cash dividends), the
Company shall mail notice thereof by registered mail to the Holder and shall
make no distribution to the stockholders of the Company until the expiration of
10 days from the date of mailing of the aforesaid notice; provided, however,
that in any such event, if the Holder shall not exercise the Warrants within 10
days from the date of mailing such notice, all rights herein granted and not so
exercised within such 10 day period shall thereafter become null and void. The
Company shall not, however, be prevented from consummating any such merger,
consolidation, sale or distribution without awaiting the expiration of such
10 day period, it being the intent and purpose hereof to enable the Holder,
upon exercise of the Warrants, to participate in the distribution of the
consideration to be received by the Company upon any such merger,
consolidation, or sale or in the distribution of assets upon any
dissolution or liquidation or in the event of any other distribution or dividend
(as provided above).
7. NO FRACTIONAL SHARES. The number of Shares subject to issuance
upon the complete exercise of the Warrants shall be rounded down to the nearest
whole number of Shares so that no fractional Shares shall be issued upon the
complete exercise of the Warrants. The Holder shall not be entitled to receive
any compensation or property for such fractional Share to which it may have been
entitled to in the absence of this provision.
8. NOTICES. If there shall be any adjustment in accordance with this
Warrant Agreement, or if securities or property other than Shares of the Company
shall become purchasable in lieu of Shares upon exercise of the Warrants, the
Company shall forthwith cause written notice thereof to be sent by registered
mail, postage prepaid, to the Holder at its address shown on the books of the
Company, which notice shall be accompanied by a certificate of either
independent public accountants of recognized standing or the Chairman,
President, or any Vice President of the Company setting forth in reasonable
detail the basis for the Holder becoming entitled to purchase such Shares and
the number of Shares which may be purchased and the exercise price thereof, or
the facts requiring any such adjustment, or the kind and amount of any such
securities or property so purchasable upon the exercise of the Warrants, as the
case may be.
9. TAXES. The issue of any stock or other certificate upon the
exercise of the Warrant shall be made without charge to the Holder for any
stamp, duty, excise, or similar tax (but not including the Holder's income or
similar taxes) in respect of the issue of such certificate. The Company shall
not, however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery of any certificate in a name other
than that of the Holder, as the registered holder of this Warrant Agreement, and
the Company shall not be required to issue or deliver any such certificate
unless and until the person or persons requesting the issue thereof shall have
paid to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
10. NON-TRANSFERABILITY OF WARRANTS. The Warrants shall be non-
transferable without the express written consent of the Company.
11. WARRANT HOLDER NOT STOCKHOLDER. This Warrant Agreement does not
confer upon the Holder any right to vote or to consent or to receive notice as a
stockholder of the Company, as such in respect of any matters whatsoever, or any
other rights or liabilities as a stockholder, prior to the exercise hereof as
provided herein.
12. INVESTMENT REPRESENTATIONS. The Holder, by acceptance hereof,
and with reference to the Warrants and the Shares issuable upon exercise of the
Warrants, represents and warrants that:
(a) The Holder is acquiring such securities for investment purposes
only, for its own account, and not with a view toward resale or other
distribution thereof, and has no present intention of selling or otherwise
disposing of such securities.
(b) The Holder is aware that the offer and sale of the securities
have not been registered under the Securities Act of 1933, as amended
("Securities Act"), or any state securities law, that upon exercise of the
Warrants, the Shares must be held indefinitely unless they are subsequently
registered or an exemption from such registration is available and that the
Company is under no obligation to register the offer and sale of the Shares
under the Securities Act or any applicable state securities laws, except as
otherwise set forth in Section 14 hereof.
(c) The Holder acknowledges that the Warrants may not be made
subject to a security interest, pledged, hypothecated, sold, or otherwise
transferred in the absence of an effective registration statement for such
Warrants under the Securities Act and such applicable state securities laws or
there is an applicable exemption therefrom. The Holder further acknowledges
that, unless the offer and sale of the Shares issuable upon exercise of the
Warrants have been registered under the Securities Act, the Shares issued upon
the exercise of the Warrants shall be restricted in the same manner and to the
same extent as the Warrants and the certificates representing such Shares shall
bear the following legend:
"THE OFFER AND SALE OF THE SHARES OF COMMON STOCK REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED ("SECURITIES ACT"), OR ANY APPLICABLE STATE SECURITIES
LAWS, BUT HAVE BEEN ACQUIRED FOR THE PRIVATE INVESTMENT OF THE HOLDER
HEREOF AND MAY NOT BE OFFERED, SOLD, OR TRANSFERRED UNTIL A
REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND SUCH APPLICABLE
STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO,
OR THERE IS AN AVAILABLE EXEMPTION THEREFROM."
In making the above representations and warranties, the Holder intends
that the Company rely thereon and understands that, as the result of such
reliance, such securities are not being registered under the Securities Act or
any applicable state securities laws in reliance upon the applicability of
certain exemptions relating to transactions not involving a public offering.
13. LOST WARRANTS. In case this Warrant Agreement shall be
mutilated, lost, stolen, or destroyed, the Company will issue a new Warrant
Agreement of like date, tenor, denomination and terms and conditions, and
deliver the same in exchange and substitution for and upon surrender and
cancellation of the mutilated Warrant Agreement, or in lieu of any Warrant
Agreement lost, stolen, or destroyed, upon receipt of evidence satisfactory to
the Company of the loss, theft, or destruction of such Warrant Agreement, and
upon receipt of indemnity satisfactory to the Company.
14. REGISTRATION RIGHTS.
(a) The Company agrees that if at any time hereafter the Company
files with the Securities and Exchange Commission ("Commission") a registration
statement ("Registration Statement") under the Securities Act on a form suitable
for registering the Shares (including Form S-8, if available) issuable upon
exercise of the Warrants (other than on Form S-4, (S-8 if unavailable), or
comparable registration statement; other than any registration statement which
has been declared effective by the Commission prior to the date hereof or has
been filed with the Commission prior to the date hereof but has not yet been
declared effective; and, other than any registration statement arising pursuant
to the terms of that certain Stipulation of Settlement and Order, dated June 11,
l996, entered in the United States District Court for the District of New
Jersey, Hon. Nicholas H. Politan presiding, in the action entitled Emerson Radio
Corp. v. Donald K. Stelling, et al., Civil Action No. 94-3393 (NHP) ), it will
give written notice to such effect to the Holder, at least 30 days prior to such
filing, and, at the written request of the Holder, made within 10 days after the
receipt of such notice, will include therein at the Company's cost and expense
(except for the fees and expenses of counsel to the Holder and underwriting
discounts and commissions attributable to the Shares of Warrant Common Stock [as
hereinafter defined] included therein) such of the Shares of Warrant Common
Stock held by the Holder as it shall request. If the registration is an
underwritten primary registration on behalf of the Company, and the managing
underwriter(s) advise the Company in writing that in their good faith opinion,
based upon market conditions, the number of securities requested to be included
in such registration exceeds the number which can be sold in such offering, the
Company will include in such registration (i) first, the securities the Company
proposes to sell, (ii) second, the Warrant Common Stock (as hereinafter defined)
requested to be included in such registration and other securities requested to
be included in such registration pursuant to contractual arrangements between
Company and such other security holders ("Registration Rights Holders"), pro
rata among the holders of the Warrant Common Stock and the Registration Rights
Holders on the basis of the number of securities requested to be included in
such registration by such holders and the Registration Rights Holders, and (iii)
third, other securities requested to be included in such registration. The
Company, at its own expense, will use its best efforts to file and seek the
effectiveness of such Registration Statement with the Commission and will cause
the prospectus included in such Registration Statement to meet the requirements
of the Securities Act necessary to effect the sale of the Shares included at
the request of the Holder and keep such Registration Statement effective for a
period of 180 days thereafter. The term "Warrant Common Stock" shall mean the
Shares issuable and issued pursuant to this Warrant Agreement and all other
Warrants originally granted to Starr and/or its employees or consultants as
contemplated in the second recital hereof and pursuant to all Warrants issued
upon transfer, division, or combination of, or in substitution for, any thereof.
The rights of the Holder under this Section 14 shall apply to an unlimited
number of offerings proposed by the Company.
(b) The Company promptly shall notify the Holder, as a participating
holder of Warrant Common Stock, of the occurrence of any event as a result of
which any prospectus included in a registration statement filed pursuant to this
Section 14 includes any misstatement of a material fact or omission of any
material fact required to be stated therein or necessary to make the statements
made therein, in light of the circumstances under which they were made, not
misleading.
(c) In addition, upon written demand received at any time on or
before 5:00 p.m., New York City time, on August 1, 2001, from the Holder or
other holders of a minimum of 50% or more of the Warrant Common Stock originally
subject to the Warrants granted to Starr and/or its employees or consultants as
contemplated in the second recital hereof, that the Holder contemplates the
transfer of all or any of his or its Warrant Common Stock under such
circumstances that registration under the Securities Act will be required, the
Company shall, not more than once, at the expense of the Company, except for the
fees and expenses of counsel to the Holder and other holders and underwriting
discounts and commissions attributable to the Shares of Warrant Common Stock
included therein, as promptly as possible after receipt of such notice, file a
new registration statement or, if available, an offering statement under
Regulation A under the Securities Act, with respect to the offering and sale or
other disposition of the Warrant Common Stock with respect to which it shall
have received such notice; provided, that the Company will only be required to
file a registration statement or offering statement or amendment thereto no
later than 135 days after any fiscal year end of the Company and at such time as
it has available for utilization therein the audited consolidated financial
statements of the Company as of the preceding fiscal year end. The Company must
file a registration statement or offering statement if the Shares of Warrant
Common Stock cannot be sold under Regulation A because of the limited exemption.
The Company agrees as soon as reasonably practicable to cause the above filing
to become effective. Within 10 days after receiving such notice, the Company
shall give notice to the other holders of the Warrants and Warrant Common Stock
advising that the Company is proceeding with such registration statement or
offering statement and offering to include therein Warrant Common Stock of such
Holder. The Company shall not be obligated to any such other Holder unless such
other Holder shall accept such offer by notice in writing to the Company within
10 days thereafter.
(d) The Company's obligations under this Section 14 with respect to
the Holder, as the holder of Warrant Common Stock, are expressly conditioned
upon the Holder promptly, completely, and accurately furnishing to the Company
in writing such information concerning the Holder and the terms of the Holder's
proposed offering as the Company shall request for inclusion in the Registration
Statement.
15. INDEMNIFICATION BY COMPANY. The Company agrees that, in the
event of the registration of the offer and sale of any of the Shares of Warrant
Common Stock, the Company will indemnify and hold harmless the Holder, its
directors, officers and each other person, if any, who controls the Holder
against any losses, claims, damages, or liabilities, joint or several, to which
the Holder or any such director, officer or controlling person may become
subject under the Securities Act, or any similar federal statute, and state Blue
Sky and securities laws, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereof) arise out of, or are based upon, any untrue
statement or alleged untrue statement under which the offer and sale of the
Shares of Warrant Common Stock were registered under such Securities Act or
similar federal statute, any state Blue Sky or securities law, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereto, or arise out of, or are based upon, the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse any party indemnified
hereunder for any legal or any other expenses reasonably incurred by such person
in connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that to the extent that any such loss,
claim, damage, or liability arises out of, or is based upon, an untrue statement
or alleged untrue statement or omission or alleged omission made in said
registration statement, said preliminary prospectus or said final prospectus or
any said amendment or supplement in reliance upon, and in conformity with,
information furnished to the Company by the Holder, the Company will not be so
liable to the Holder.
16. INDEMNIFICATION BY THE HOLDER. The Holder, by acceptance hereof,
agrees to indemnify and hold harmless the Company, its directors and officers,
and each other person, if any, who controls the Company, against any losses,
claims, damages, or liabilities, joint or several, to which the Company or any
such director or officer or any such person may become subject under the
Securities Act, or any other statute or at common law, insofar as such losses,
claims, damages, or liabilities (or actions in respect thereof) arise out of or
are based upon the disposition by the Holder of the Warrants or the Shares
issuable upon the exercise hereof in violation of the provisions of this Warrant
Agreement or arises out of, or is based upon, an untrue statement or alleged
untrue statement or omission or alleged omission made in any registration
statement, any preliminary prospectus, or final prospectus, or any amendment or
supplement thereto in reliance upon, and in conformity with, information
furnished to the Company by the Holder.
17. APPLICABLE LAW. This Warrant Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, without
regard to the conflict of laws provisions thereof.
IN WITNESS WHEREOF, the parties hereto have executed this Warrant
Agreement effective as of the day and year first above written.
EMERSON RADIO CORP.
By: /s/ Eugene I. Davis
Eugene I. Davis, President
STARR SECURITIES, INC.
By: /s/ Martin Vegh, President
(Name) (Title)
THE GRANT OF THIS WARRANT AND THE PURCHASE OF THE COMMON STOCK ISSUABLE UPON
EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM.
COMMON STOCK PURCHASE WARRANT AGREEMENT
This COMMON STOCK PURCHASE WARRANT AGREEMENT (the "Warrant Agreement")
is entered into effective as of the 1st day of August, l996, by and between
EMERSON RADIO CORP., a Delaware corporation (the "Company"), and ARTHUR STERN,
III and his heirs, legal representatives and permitted assigns ("Holder"), Mr.
Stern being a Senior Vice President of STARR SECURITIES, INC., a New York
corporation ("Starr").
WHEREAS, on even date herewith, the Company and Starr entered into
that certain Consulting Agreement (the "Consulting Agreement") whereby the
Company engaged Starr to render to the Company certain consulting services more
particularly described in Section 2 thereof (the "Consulting Services"); and
WHEREAS, in consideration for the Consulting Agreement and for the
Consulting Services to be provided thereunder, the Company has agreed to issue
to Starr, and/or employees or consultants of Starr designated by it upon its
execution and delivery of the Consulting Agreement, Holder being so designated
by the execution by Starr of this Warrant Agreement, Common Stock Purchase
Warrants (the "Warrants") to purchase an aggregate of 250,000 shares of the
Company's common stock, par value $0.01 per share (the "Common Stock"), pursuant
to the requirements relating to the exercise thereof set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrants and the respective rights and obligations thereunder,
the parties hereto agree as follows:
1. GRANT OF WARRANTS. For value received, the Company hereby grants
Holder, subject to the terms and conditions hereinafter set forth, the right to
purchase up to a maximum of 110,000 shares of the Common Stock of the Company
(the "Shares"), subject to adjustment as set forth herein.
2. EXERCISE OF WARRANTS. The Warrants will vest and may be exercised
by the Holder as to (i) 50% of the Shares covered hereby at any time after
February 1, 1997, and (ii) all or any part of the Shares covered hereby at any
time after August 1, 1997, in either event until August 1, 2001, when such
Warrants shall expire, at an exercise price of $4.00 per share ("Warrant
Exercise Price"). The Holder shall deliver to the Company written notice of
Holder's intent to exercise the Warrants at Nine Entin Road, Parsippany, New
Jersey 07054-0430, or at such other address as the Company shall designate in
writing to the Holder, together with this Warrant Agreement and a check payable
to the order of the Company for the aggregate purchase price of the Shares so
purchased. Upon exercise of the Warrants as aforesaid, the Company shall as
promptly as practicable, and in any event within 10 days thereafter, execute and
deliver to the Holder a certificate or certificates in the name of the Holder
for the total number of whole Shares for which the Warrants are being exercised.
If the Warrants shall be exercised with respect to less than all of the Shares,
the Holder shall be entitled to receive a similar warrant of like tenor and date
covering the number of Shares in respect of which the Warrants were not
exercised. The Warrants covered by this Warrant Agreement shall lapse and be
null and void if not exercised by the Holder on or before 5:00 p.m., New York
City time, on August 1, 2001.
3. COVENANTS OF THE COMPANY. The Company covenants and agrees that
all the Shares which may be issued upon the exercise of the Warrants represented
by this Warrant Agreement will, upon issuance, be fully paid and nonassessable
and free from all taxes, liens, and charges with respect to the issue thereof
(other than taxes in respect of any transfer occurring contemporaneously with
such issue). The Company further covenants and agrees that during the period
within which the Warrants represented by this Warrant Agreement may be
exercised, the Company will at all times have authorized and reserved a
sufficient number of Shares to provide for the exercise of the Warrants
represented by this Warrant Agreement.
4. ADJUSTMENTS OF WARRANT EXERCISE PRICE AND NUMBER OF SHARES.
(a) If the Company shall, without the payment of new value, at any
time declare a stock dividend on its outstanding shares of Common Stock or
effectuate a stock split or reverse stock split, by subdivision or consolidation
in any manner, regarding the number of shares of the Common Stock then
outstanding into a different number of shares of the Common Stock, with or
without par value, then thereafter the number of Shares which the holder shall
have the right to purchase (calculated immediately prior to such change), shall
be increased or decreased, as the case may be, in direct proportion to the
increase or decrease in the number of shares of the Common Stock of the Company
issued and outstanding by reason of such dividend or change, and the Warrant
Exercise Price of the Shares after such change shall in the event of an increase
in the number of shares of the Common Stock be proportionately reduced, and in
the event of a decrease in the number of shares of the Common Stock be
proportionately increased.
(b) Notwithstanding anything herein to the contrary, for purposes
of this Section 4, the Holder agrees that no adjustment shall be made to the
Warrant Exercise Price or the number of Shares issuable upon the exercise of
this Warrant Agreement upon issuance of Common Stock (or any other securities)
of the Company for any purposes other than as set forth in Sections 4(a) and 5
herein.
5. SURVIVAL IN THE EVENT OF MERGERS AND REORGANIZATIONS. In the
event of the reclassification or change in the outstanding Common Stock (other
than a change in par value, or from par value to no par value, or from no par
value to par value, or as a result of a subdivision, combination or stock
dividend), or in the event of a sale of all or substantially all of the assets
of the Company, or in the event of any consolidation of the Company with, or
merger of the Company into, another corporation, the Company, or such successor
corporation, as the case may be, shall provide that, the Holder shall thereafter
be entitled to purchase the kind and amount of shares of stock and other
securities and property receivable upon such reclassification, change,
consolidation, sale, or merger by a holder of the number of Shares which this
Warrant Agreement entitled the holder thereof to purchase immediately prior to
such reclassification, change, consolidation, sale, or merger. Such
corporation, which thereafter shall be deemed to be the Company for purposes of
this Warrant Agreement, shall provide for adjustments, if any, which shall be as
nearly equivalent as may be practicable to the adjustments provided for in this
Warrant Agreement.
6. SALE OF ASSETS, DISSOLUTION. In the event of a sale of all or
substantially all the assets of the Company, or in the event of any distribution
of all or substantially all of its assets in dissolution or liquidation, or in
the event of any other distribution or dividend (other than cash dividends), the
Company shall mail notice thereof by registered mail to the Holder and shall
make no distribution to the stockholders of the Company until the expiration of
10 days from the date of mailing of the aforesaid notice; provided, however,
that in any such event, if the Holder shall not exercise the Warrants within 10
days from the date of mailing such notice, all rights herein granted and not so
exercised within such 10 day period shall thereafter become null and void. The
Company shall not, however, be prevented from consummating any such merger,
consolidation, sale or distribution without awaiting the expiration of such 10
day period, it being the intent and purpose hereof to enable the Holder, upon
exercise of the Warrants, to participate in the distribution of the
consideration to be received by the Company upon any such merger,
consolidation, or sale or in the distribution of assets upon any dissolution or
liquidation or in the event of any other distribution or dividend (as provided
above).
7. NO FRACTIONAL SHARES. The number of Shares subject to issuance
upon the complete exercise of the Warrants shall be rounded down to the nearest
whole number of Shares so that no fractional Shares shall be issued upon the
complete exercise of the Warrants. The Holder shall not be entitled to receive
any compensation or property for such fractional Share to which it may have been
entitled to in the absence of this provision.
8. NOTICES. If there shall be any adjustment in accordance with this
Warrant Agreement, or if securities or property other than Shares of the Company
shall become purchasable in lieu of Shares upon exercise of the Warrants, the
Company shall forthwith cause written notice thereof to be sent by registered
mail, postage prepaid, to the Holder at its address shown on the books of the
Company, which notice shall be accompanied by a certificate of either
independent public accountants of recognized standing or the Chairman,
President, or any Vice President of the Company setting forth in reasonable
detail the basis for the Holder becoming entitled to purchase such Shares and
the number of Shares which may be purchased and the exercise price thereof, or
the facts requiring any such adjustment, or the kind and amount of any such
securities or property so purchasable upon the exercise of the Warrants, as the
case may be.
9. TAXES. The issue of any stock or other certificate upon the
exercise of the Warrant shall be made without charge to the Holder for any
stamp, duty, excise, or similar tax (but not including the Holder's income or
similar taxes) in respect of the issue of such certificate. The Company shall
not, however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery of any certificate in a name other
than that of the Holder, as the registered holder of this Warrant Agreement, and
the Company shall not be required to issue or deliver any such certificate
unless and until the person or persons requesting the issue thereof shall have
paid to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
10. NON-TRANSFERABILITY OF WARRANTS. The Warrants shall be non-
transferable without the express written consent of the Company.
11. WARRANT HOLDER NOT STOCKHOLDER. This Warrant Agreement does not
confer upon the Holder any right to vote or to consent or to receive notice as a
stockholder of the Company, as such in respect of any matters whatsoever, or any
other rights or liabilities as a stockholder, prior to the exercise hereof as
provided herein.
12. INVESTMENT REPRESENTATIONS. The Holder, by acceptance hereof,
and with reference to the Warrants and the Shares issuable upon exercise of the
Warrants, represents and warrants that:
(a) The Holder is acquiring such securities for investment purposes
only, for its own account, and not with a view toward resale or other
distribution thereof, and has no present intention of selling or otherwise
disposing of such securities.
(b) The Holder is aware that the offer and sale of the securities
have not been registered under the Securities Act of 1933, as amended
("Securities Act"), or any state securities law, that upon exercise of the
Warrants, the Shares must be held indefinitely unless they are subsequently
registered or an exemption from such registration is available and that the
Company is under no obligation to register the offer and sale of the Shares
under the Securities Act or any applicable state securities laws, except as
otherwise set forth in Section 14 hereof.
(c) The Holder acknowledges that the Warrants may not be made
subject to a security interest, pledged, hypothecated, sold, or otherwise
transferred in the absence of an effective registration statement for such
Warrants under the Securities Act and such applicable state securities laws or
there is an applicable exemption therefrom. The Holder further acknowledges
that, unless the offer and sale of the Shares issuable upon exercise of the
Warrants have been registered under the Securities Act, the Shares issued upon
the exercise of the Warrants shall be restricted in the same manner and to the
same extent as the Warrants and the certificates representing such Shares shall
bear the following legend:
"THE OFFER AND SALE OF THE SHARES OF COMMON STOCK REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED ("SECURITIES ACT"), OR ANY APPLICABLE STATE SECURITIES
LAWS, BUT HAVE BEEN ACQUIRED FOR THE PRIVATE INVESTMENT OF THE HOLDER
HEREOF AND MAY NOT BE OFFERED, SOLD, OR TRANSFERRED UNTIL A
REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND SUCH APPLICABLE
STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO,
OR THERE IS AN AVAILABLE EXEMPTION THEREFROM."
In making the above representations and warranties, the Holder intends
that the Company rely thereon and understands that, as the result of such
reliance, such securities are not being registered under the Securities Act or
any applicable state securities laws in reliance upon the applicability of
certain exemptions relating to transactions not involving a public offering.
13. LOST WARRANTS. In case this Warrant Agreement shall be
mutilated, lost, stolen, or destroyed, the Company will issue a new Warrant
Agreement of like date, tenor, denomination and terms and conditions, and
deliver the same in exchange and substitution for and upon surrender and
cancellation of the mutilated Warrant Agreement, or in lieu of any Warrant
Agreement lost, stolen, or destroyed, upon receipt of evidence satisfactory to
the Company of the loss, theft, or destruction of such Warrant Agreement, and
upon receipt of indemnity satisfactory to the Company.
14. REGISTRATION RIGHTS.
(a) The Company agrees that if at any time hereafter the Company
files with the Securities and Exchange Commission ("Commission") a registration
statement ("Registration Statement") under the Securities Act on a form suitable
for registering the Shares (including Form S-8, if available) issuable upon
exercise of the Warrants (other than on Form S-4, (S-8 if unavailable), or
comparable registration statement; other than any registration statement which
has been declared effective by the Commission prior to the date hereof or has
been filed with the Commission prior to the date hereof but has not yet been
declared effective; and, other than any registration statement arising pursuant
to the terms of that certain Stipulation of Settlement and Order, dated June 11,
l996, entered in the United States District Court for the District of New
Jersey, Hon. Nicholas H. Politan presiding, in the action entitled Emerson Radio
Corp. v. Donald K. Stelling, et al., Civil Action No. 94-3393 (NHP) ), it will
give written notice to such effect to the Holder, at least 30 days prior to such
filing, and, at the written request of the Holder, made within 10 days after the
receipt of such notice, will include therein at the Company's cost and expense
(except for the fees and expenses of counsel to the Holder and underwriting
discounts and commissions attributable to the Shares of Warrant Common Stock [as
hereinafter defined] included therein) such of the Shares of Warrant Common
Stock held by the Holder as it shall request. If the registration is an
underwritten primary registration on behalf of the Company, and the managing
underwriter(s) advise the Company in writing that in their good faith opinion,
based upon market conditions, the number of securities requested to be included
in such registration exceeds the number which can be sold in such offering, the
Company will include in such registration (i) first, the securities the Company
proposes to sell, (ii) second, the Warrant Common Stock (as hereinafter defined)
requested to be included in such registration and other securities requested to
be included in such registration pursuant to contractual arrangements between
Company and such other security holders ("Registration Rights Holders"), pro
rata among the holders of the Warrant Common Stock and the Registration Rights
Holders on the basis of the number of securities requested to be included in
such registration by such holders and the Registration Rights Holders, and (iii)
third, other securities requested to be included in such registration. The
Company, at its own expense, will use its best efforts to file and seek the
effectiveness of such Registration Statement with the Commission and will cause
the prospectus included in such Registration Statement to meet the requirements
of the Securities Act necessary to effect the sale of the Shares included at
the request of the Holder and keep such Registration Statement effective for a
period of 180 days thereafter. The term "Warrant Common Stock" shall mean the
Shares issuable and issued pursuant to this Warrant Agreement and all other
Warrants originally granted to Starr and/or its employees or consultants as
contemplated in the second recital hereof and pursuant to all Warrants issued
upon transfer, division, or combination of, or in substitution for, any thereof.
The rights of the Holder under this Section 14 shall apply to an unlimited
number of offerings proposed by the Company.
(b) The Company promptly shall notify the Holder, as a participating
holder of Warrant Common Stock, of the occurrence of any event as a result of
which any prospectus included in a registration statement filed pursuant to this
Section 14 includes any misstatement of a material fact or omission of any
material fact required to be stated therein or necessary to make the statements
made therein, in light of the circumstances under which they were made, not
misleading.
(c) In addition, upon written demand received at any time on or
before 5:00 p.m., New York City time, on August 1, 2001, from the Holder or
other holders of a minimum of 50% or more of the Warrant Common Stock originally
subject to the Warrants granted to Starr and/or its employees or consultants as
contemplated in the second recital hereof, that the Holder contemplates the
transfer of all or any of his or its Warrant Common Stock under such
circumstances that registration under the Securities Act will be required, the
Company shall, not more than once, at the expense of the Company, except for the
fees and expenses of counsel to the Holder and other holders and underwriting
discounts and commissions attributable to the Shares of Warrant Common Stock
included therein, as promptly as possible after receipt of such notice, file a
new registration statement or, if available, an offering statement under
Regulation A under the Securities Act, with respect to the offering and sale or
other disposition of the Warrant Common Stock with respect to which it shall
have received such notice; provided, that the Company will only be required to
file a registration statement or offering statement or amendment thereto no
later than 135 days after any fiscal year end of the Company and at such time as
it has available for utilization therein the audited consolidated financial
statements of the Company as of the preceding fiscal year end. The Company must
file a registration statement or offering statement if the Shares of Warrant
Common Stock cannot be sold under Regulation A because of the limited exemption.
The Company agrees as soon as reasonably practicable to cause the above filing
to become effective. Within 10 days after receiving such notice, the Company
shall give notice to the other holders of the Warrants and Warrant Common Stock
advising that the Company is proceeding with such registration statement or
offering statement and offering to include therein Warrant Common Stock of such
Holder. The Company shall not be obligated to any such other Holder unless such
other Holder shall accept such offer by notice in writing to the Company within
10 days thereafter.
(d) The Company's obligations under this Section 14 with respect to
the Holder, as the holder of Warrant Common Stock, are expressly conditioned
upon the Holder promptly, completely, and accurately furnishing to the Company
in writing such information concerning the Holder and the terms of the Holder's
proposed offering as the Company shall request for inclusion in the Registration
Statement.
15. INDEMNIFICATION BY COMPANY. The Company agrees that, in the
event of the registration of the offer and sale of any of the Shares of Warrant
Common Stock, the Company will indemnify and hold harmless the Holder against
any losses, claims, damages, or liabilities to which the Holder may become
subject under the Securities Act, or any similar federal statute, and state Blue
Sky and securities laws, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereof) arise out of, or are based upon, any untrue
statement or alleged untrue statement under which the offer and sale of the
Shares of Warrant Common Stock were registered under such Securities Act or
similar federal statute, any state Blue Sky or securities law, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereto, or arise out of, or are based upon, the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse the Holder for any
legal or any other expenses reasonably incurred by the Holder in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that to the extent that any such loss, claim, damage, or
liability arises out of, or is based upon, an untrue statement or alleged untrue
statement or omission or alleged omission made in said registration statement,
said preliminary prospectus or said final prospectus or any said amendment or
supplement in reliance upon, and in conformity with, information furnished to
the Company by the Holder, the Company will not be so liable to the Holder.
16. INDEMNIFICATION BY THE HOLDER. The Holder, by acceptance hereof,
agrees to indemnify and hold harmless the Company, its directors and officers,
and each other person, if any, who controls the Company, against any losses,
claims, damages, or liabilities, joint or several, to which the Company or any
such director or officer or any such person may become subject under the
Securities Act, or any other statute or at common law, insofar as such losses,
claims, damages, or liabilities (or actions in respect thereof) arise out of or
are based upon the disposition by the Holder of the Warrants or the Shares
issuable upon the exercise hereof in violation of the provisions of this Warrant
Agreement or arises out of, or is based upon, an untrue statement or alleged
untrue statement or omission or alleged omission made in any registration
statement, any preliminary prospectus, or final prospectus, or any amendment or
supplement thereto in reliance upon, and in conformity with, information
furnished to the Company by the Holder.
17. APPLICABLE LAW. This Warrant Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, without regard
to the conflict of laws provisions thereof.
IN WITNESS WHEREOF, the parties hereto have executed this Warrant
Agreement effective as of the day and year first above written.
EMERSON RADIO CORP.
By: /s/ Eugene I. Davis
Eugene I. Davis, President
ARTHUR STERN, III
/s/ Arthur Stern, III
STARR SECURITIES, INC.
By: /s/ Martin Vegh, President
(Name) (Title)
THE GRANT OF THIS WARRANT AND THE PURCHASE OF THE COMMON STOCK ISSUABLE UPON
EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM.
COMMON STOCK PURCHASE WARRANT AGREEMENT
This COMMON STOCK PURCHASE WARRANT AGREEMENT (the "Warrant Agreement")
is entered into effective as of the 1st day of August, l996, by and between
EMERSON RADIO CORP., a Delaware corporation (the "Company"), and ARTHUR STERN,
IV and his heirs, legal representatives and permitted assigns ("Holder"), Mr.
Stern being a consultant of STARR SECURITIES, INC., a New York corporation
("Starr").
WHEREAS, on even date herewith, the Company and Starr entered into
that certain Consulting Agreement (the "Consulting Agreement") whereby the
Company engaged Starr to render to the Company certain consulting services more
particularly described in Section 2 thereof (the "Consulting Services"); and
WHEREAS, in consideration for the Consulting Agreement and for the
Consulting Services to be provided thereunder, the Company has agreed to issue
to Starr, and/or employees or consultants of Starr designated by it upon its
execution and delivery of the Consulting Agreement, Holder being so designated
by the execution by Starr of this Warrant Agreement, Common Stock Purchase
Warrants (the "Warrants") to purchase an aggregate of 250,000 shares of the
Company's common stock, par value $0.01 per share (the "Common Stock"), pursuant
to the requirements relating to the exercise thereof set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrants and the respective rights and obligations thereunder,
the parties hereto agree as follows:
1. GRANT OF WARRANTS. For value received, the Company hereby grants
Holder, subject to the terms and conditions hereinafter set forth, the right to
purchase up to a maximum of 15,000 shares of the Common Stock of the Company
(the "Shares"), subject to adjustment as set forth herein.
2. EXERCISE OF WARRANTS. The Warrants will vest and may be exercised
by the Holder as to (i) 50% of the Shares covered hereby at any time after
February 1, 1997, and (ii) all or any part of the Shares covered hereby at any
time after August 1, 1997, in either event until August 1, 2001, when such
Warrants shall expire, at an exercise price of $4.00 per share ("Warrant
Exercise Price"). The Holder shall deliver to the Company written notice of
Holder's intent to exercise the Warrants at Nine Entin Road, Parsippany, New
Jersey 07054-0430, or at such other address as the Company shall designate in
writing to the Holder, together with this Warrant Agreement and a check payable
to the order of the Company for the aggregate purchase price of the Shares so
purchased. Upon exercise of the Warrants as aforesaid, the Company shall as
promptly as practicable, and in any event within 10 days thereafter, execute and
deliver to the Holder a certificate or certificates in the name of the Holder
for the total number of whole Shares for which the Warrants are being exercised.
If the Warrants shall be exercised with respect to less than all of the Shares,
the Holder shall be entitled to receive a similar warrant of like tenor and date
covering the number of Shares in respect of which the Warrants were not
exercised. The Warrants covered by this Warrant Agreement shall lapse and be
null and void if not exercised by the Holder on or before 5:00 p.m., New York
City time, on August 1, 2001.
3. COVENANTS OF THE COMPANY. The Company covenants and agrees that
all the Shares which may be issued upon the exercise of the Warrants represented
by this Warrant Agreement will, upon issuance, be fully paid and nonassessable
and free from all taxes, liens, and charges with respect to the issue thereof
(other than taxes in respect of any transfer occurring contemporaneously with
such issue). The Company further covenants and agrees that during the period
within which the Warrants represented by this Warrant Agreement may be
exercised, the Company will at all times have authorized and reserved a
sufficient number of Shares to provide for the exercise of the Warrants
represented by this Warrant Agreement.
4. ADJUSTMENTS OF WARRANT EXERCISE PRICE AND NUMBER OF SHARES.
(a) If the Company shall, without the payment of new value, at any
time declare a stock dividend on its outstanding shares of Common Stock or
effectuate a stock split or reverse stock split, by subdivision or consolidation
in any manner, regarding the number of shares of the Common Stock then
outstanding into a different number of shares of the Common Stock, with or
without par value, then thereafter the number of Shares which the holder shall
have the right to purchase (calculated immediately prior to such change), shall
be increased or decreased, as the case may be, in direct proportion to the
increase or decrease in the number of shares of the Common Stock of the Company
issued and outstanding by reason of such dividend or change, and the Warrant
Exercise Price of the Shares after such change shall in the event of an increase
in the number of shares of the Common Stock be proportionately reduced, and in
the event of a decrease in the number of shares of the Common Stock be
proportionately increased.
(b) Notwithstanding anything herein to the contrary, for purposes
of this Section 4, the Holder agrees that no adjustment shall be made to the
Warrant Exercise Price or the number of Shares issuable upon the exercise of
this Warrant Agreement upon issuance of Common Stock (or any other securities)
of the Company for any purposes other than as set forth in Sections 4(a) and 5
herein.
5. SURVIVAL IN THE EVENT OF MERGERS AND REORGANIZATIONS. In the
event of the reclassification or change in the outstanding Common Stock (other
than a change in par value, or from par value to no par value, or from no par
value to par value, or as a result of a subdivision, combination or stock
dividend), or in the event of a sale of all or substantially all of the assets
of the Company, or in the event of any consolidation of the Company with, or
merger of the Company into, another corporation, the Company, or such successor
corporation, as the case may be, shall provide that, the Holder shall thereafter
be entitled to purchase the kind and amount of shares of stock and other
securities and property receivable upon such reclassification, change,
consolidation, sale, or merger by a holder of the number of Shares which this
Warrant Agreement entitled the holder thereof to purchase immediately prior to
such reclassification, change, consolidation, sale, or merger. Such
corporation, which thereafter shall be deemed to be the Company for purposes of
this Warrant Agreement, shall provide for adjustments, if any, which shall be as
nearly equivalent as may be practicable to the adjustments provided for in this
Warrant Agreement.
6. SALE OF ASSETS, DISSOLUTION. In the event of a sale of all or
substantially all the assets of the Company, or in the event of any distribution
of all or substantially all of its assets in dissolution or liquidation, or in
the event of any other distribution or dividend (other than cash dividends), the
Company shall mail notice thereof by registered mail to the Holder and shall
make no distribution to the stockholders of the Company until the expiration of
10 days from the date of mailing of the aforesaid notice; provided, however,
that in any such event, if the Holder shall not exercise the Warrants within 10
days from the date of mailing such notice, all rights herein granted and not so
exercised within such 10 day period shall thereafter become null and void. The
Company shall not, however, be prevented from consummating any such merger,
consolidation, sale or distribution without awaiting the expiration of such 10
day period, it being the intent and purpose hereof to enable the Holder, upon
exercise of the Warrants, to participate in the distribution of the
consideration to be received by the Company upon any such merger,
consolidation, or sale or in the distribution of assets upon any
dissolution or liquidation or in the event of any other distribution or dividend
(as provided above).
7. NO FRACTIONAL SHARES. The number of Shares subject to issuance
upon the complete exercise of the Warrants shall be rounded down to the nearest
whole number of Shares so that no fractional Shares shall be issued upon the
complete exercise of the Warrants. The Holder shall not be entitled to receive
any compensation or property for such fractional Share to which it may have been
entitled to in the absence of this provision.
8. NOTICES. If there shall be any adjustment in accordance with this
Warrant Agreement, or if securities or property other than Shares of the Company
shall become purchasable in lieu of Shares upon exercise of the Warrants, the
Company shall forthwith cause written notice thereof to be sent by registered
mail, postage prepaid, to the Holder at its address shown on the books of the
Company, which notice shall be accompanied by a certificate of either
independent public accountants of recognized standing or the Chairman,
President, or any Vice President of the Company setting forth in reasonable
detail the basis for the Holder becoming entitled to purchase such Shares and
the number of Shares which may be purchased and the exercise price thereof, or
the facts requiring any such adjustment, or the kind and amount of any such
securities or property so purchasable upon the exercise of the Warrants, as the
case may be.
9. TAXES. The issue of any stock or other certificate upon the
exercise of the Warrant shall be made without charge to the Holder for any
stamp, duty, excise, or similar tax (but not including the Holder's income or
similar taxes) in respect of the issue of such certificate. The Company shall
not, however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery of any certificate in a name other
than that of the Holder, as the registered holder of this Warrant Agreement, and
the Company shall not be required to issue or deliver any such certificate
unless and until the person or persons requesting the issue thereof shall have
paid to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
10. NON-TRANSFERABILITY OF WARRANTS. The Warrants shall be non-
transferable without the express written consent of the Company.
11. WARRANT HOLDER NOT STOCKHOLDER. This Warrant Agreement does not
confer upon the Holder any right to vote or to consent or to receive notice as a
stockholder of the Company, as such in respect of any matters whatsoever, or any
other rights or liabilities as a stockholder, prior to the exercise hereof as
provided herein.
12. INVESTMENT REPRESENTATIONS. The Holder, by acceptance hereof,
and with reference to the Warrants and the Shares issuable upon exercise of the
Warrants, represents and warrants that:
(a) The Holder is acquiring such securities for investment purposes
only, for its own account, and not with a view toward resale or other
distribution thereof, and has no present intention of selling or otherwise
disposing of such securities.
(b) The Holder is aware that the offer and sale of the securities
have not been registered under the Securities Act of 1933, as amended
("Securities Act"), or any state securities law, that upon exercise of the
Warrants, the Shares must be held indefinitely unless they are subsequently
registered or an exemption from such registration is available and that the
Company is under no obligation to register the offer and sale of the Shares
under the Securities Act or any applicable state securities laws, except as
otherwise set forth in Section 14 hereof.
(c) The Holder acknowledges that the Warrants may not be made
subject to a security interest, pledged, hypothecated, sold, or otherwise
transferred in the absence of an effective registration statement for such
Warrants under the Securities Act and such applicable state securities laws or
there is an applicable exemption therefrom. The Holder further acknowledges
that, unless the offer and sale of the Shares issuable upon exercise of the
Warrants have been registered under the Securities Act, the Shares issued upon
the exercise of the Warrants shall be restricted in the same manner and to the
same extent as the Warrants and the certificates representing such Shares shall
bear the following legend:
"THE OFFER AND SALE OF THE SHARES OF COMMON STOCK REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED ("SECURITIES ACT"), OR ANY APPLICABLE STATE SECURITIES
LAWS, BUT HAVE BEEN ACQUIRED FOR THE PRIVATE INVESTMENT OF THE HOLDER
HEREOF AND MAY NOT BE OFFERED, SOLD, OR TRANSFERRED UNTIL A
REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND SUCH APPLICABLE
STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO,
OR THERE IS AN AVAILABLE EXEMPTION THEREFROM."
In making the above representations and warranties, the Holder intends
that the Company rely thereon and understands that, as the result of such
reliance, such securities are not being registered under the Securities Act or
any applicable state securities laws in reliance upon the applicability of
certain exemptions relating to transactions not involving a public offering.
13. LOST WARRANTS. In case this Warrant Agreement shall be
mutilated, lost, stolen, or destroyed, the Company will issue a new Warrant
Agreement of like date, tenor, denomination and terms and conditions, and
deliver the same in exchange and substitution for and upon surrender and
cancellation of the mutilated Warrant Agreement, or in lieu of any Warrant
Agreement lost, stolen, or destroyed, upon receipt of evidence satisfactory to
the Company of the loss, theft, or destruction of such Warrant Agreement, and
upon receipt of indemnity satisfactory to the Company.
14. REGISTRATION RIGHTS.
(a) The Company agrees that if at any time hereafter the Company
files with the Securities and Exchange Commission ("Commission") a registration
statement ("Registration Statement") under the Securities Act on a form suitable
for registering the Shares (including Form S-8, if available) issuable upon
exercise of the Warrants (other than on Form S-4, (S-8 if unavailable), or
comparable registration statement; other than any registration statement which
has been declared effective by the Commission prior to the date hereof or has
been filed with the Commission prior to the date hereof but has not yet been
declared effective; and, other than any registration statement arising pursuant
to the terms of that certain Stipulation of Settlement and Order, dated June 11,
l996, entered in the United States District Court for the District of New
Jersey, Hon. Nicholas H. Politan presiding, in the action entitled Emerson Radio
Corp. v. Donald K. Stelling, et al., Civil Action No. 94-3393 (NHP) ), it will
give written notice to such effect to the Holder, at least 30 days prior to such
filing, and, at the written request of the Holder, made within 10 days after the
receipt of such notice, will include therein at the Company's cost and expense
(except for the fees and expenses of counsel to the Holder and underwriting
discounts and commissions attributable to the Shares of Warrant Common Stock [as
hereinafter defined] included therein) such of the Shares of Warrant Common
Stock held by the Holder as it shall request. If the registration is an
underwritten primary registration on behalf of the Company, and the managing
underwriter(s) advise the Company in writing that in their good faith opinion,
based upon market conditions, the number of securities requested to be included
in such registration exceeds the number which can be sold in such offering, the
Company will include in such registration (i) first, the securities the Company
proposes to sell, (ii) second, the Warrant Common Stock (as hereinafter defined)
requested to be included in such registration and other securities requested to
be included in such registration pursuant to contractual arrangements between
Company and such other security holders ("Registration Rights Holders"), pro
rata among the holders of the Warrant Common Stock and the Registration Rights
Holders on the basis of the number of securities requested to be included in
such registration by such holders and the Registration Rights Holders, and (iii)
third, other securities requested to be included in such registration. The
Company, at its own expense, will use its best efforts to file and seek the
effectiveness of such Registration Statement with the Commission and will cause
the prospectus included in such Registration Statement to meet the requirements
of the Securities Act necessary to effect the sale of the Shares included at
the request of the Holder and keep such Registration Statement effective for a
period of 180 days thereafter. The term "Warrant Common Stock" shall mean the
Shares issuable and issued pursuant to this Warrant Agreement and all other
Warrants originally granted to Starr and/or its employees or consultants as
contemplated in the second recital hereof and pursuant to all Warrants issued
upon transfer, division, or combination of, or in substitution for, any thereof.
The rights of the Holder under this Section 14 shall apply to an unlimited
number of offerings proposed by the Company.
(b) The Company promptly shall notify the Holder, as a participating
holder of Warrant Common Stock, of the occurrence of any event as a result of
which any prospectus included in a registration statement filed pursuant to this
Section 14 includes any misstatement of a material fact or omission of any
material fact required to be stated therein or necessary to make the statements
made therein, in light of the circumstances under which they were made, not
misleading.
(c) In addition, upon written demand received at any time on or
before 5:00 p.m., New York City time, on August 1, 2001, from the Holder or
other holders of a minimum of 50% or more of the Warrant Common Stock originally
subject to the Warrants granted to Starr and/or its employees or consultants as
contemplated in the second recital hereof, that the Holder contemplates the
transfer of all or any of his or its Warrant Common Stock under such
circumstances that registration under the Securities Act will be required, the
Company shall, not more than once, at the expense of the Company, except for the
fees and expenses of counsel to the Holder and other holders and underwriting
discounts and commissions attributable to the Shares of Warrant Common Stock
included therein, as promptly as possible after receipt of such notice, file a
new registration statement or, if available, an offering statement under
Regulation A under the Securities Act, with respect to the offering and sale or
other disposition of the Warrant Common Stock with respect to which it shall
have received such notice; provided, that the Company will only be required to
file a registration statement or offering statement or amendment thereto no
later than 135 days after any fiscal year end of the Company and at such time as
it has available for utilization therein the audited consolidated financial
statements of the Company as of the preceding fiscal year end. The Company must
file a registration statement or offering statement if the Shares of Warrant
Common Stock cannot be sold under Regulation A because of the limited exemption.
The Company agrees as soon as reasonably practicable to cause the above filing
to become effective. Within 10 days after receiving such notice, the Company
shall give notice to the other holders of the Warrants and Warrant Common Stock
advising that the Company is proceeding with such registration statement or
offering statement and offering to include therein Warrant Common Stock of such
Holder. The Company shall not be obligated to any such other Holder unless such
other Holder shall accept such offer by notice in writing to the Company within
10 days thereafter.
(d) The Company's obligations under this Section 14 with respect to
the Holder, as the holder of Warrant Common Stock, are expressly conditioned
upon the Holder promptly, completely, and accurately furnishing to the Company
in writing such information concerning the Holder and the terms of the Holder's
proposed offering as the Company shall request for inclusion in the Registration
Statement.
15. INDEMNIFICATION BY COMPANY. The Company agrees that, in the
event of the registration of the offer and sale of any of the Shares of Warrant
Common Stock, the Company will indemnify and hold harmless the Holder against
any losses, claims, damages, or liabilities to which the Holder may become
subject under the Securities Act, or any similar federal statute, and state Blue
Sky and securities laws, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereof) arise out of, or are based upon, any untrue
statement or alleged untrue statement under which the offer and sale of the
Shares of Warrant Common Stock were registered under such Securities Act or
similar federal statute, any state Blue Sky or securities law, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereto, or arise out of, or are based upon, the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse the Holder for any
legal or any other expenses reasonably incurred by the Holder in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that to the extent that any such loss, claim, damage, or
liability arises out of, or is based upon, an untrue statement or alleged untrue
statement or omission or alleged omission made in said registration statement,
said preliminary prospectus or said final prospectus or any said amendment or
supplement in reliance upon, and in conformity with, information furnished to
the Company by the Holder, the Company will not be so liable to the Holder.
16. INDEMNIFICATION BY THE HOLDER. The Holder, by acceptance hereof,
agrees to indemnify and hold harmless the Company, its directors and officers,
and each other person, if any, who controls the Company, against any losses,
claims, damages, or liabilities, joint or several, to which the Company or any
such director or officer or any such person may become subject under the
Securities Act, or any other statute or at common law, insofar as such losses,
claims, damages, or liabilities (or actions in respect thereof) arise out of or
are based upon the disposition by the Holder of the Warrants or the Shares
issuable upon the exercise hereof in violation of the provisions of this Warrant
Agreement or arises out of, or is based upon, an untrue statement or alleged
untrue statement or omission or alleged omission made in any registration
statement, any preliminary prospectus, or final prospectus, or any amendment or
supplement thereto in reliance upon, and in conformity with, information
furnished to the Company by the Holder.
17. APPLICABLE LAW. This Warrant Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, without regard
to the conflict of laws provisions thereof.
IN WITNESS WHEREOF, the parties hereto have executed this Warrant
Agreement effective as of the day and year first above written.
EMERSON RADIO CORP.
By: /s/ Eugene I. Davis
Eugene I. Davis, President
ARTHUR STERN, IV
/s/ Arthur Stern, IV
STARR SECURITIES, INC.
By: /s/ Martin Vegh, President
(Name) (Title)
